The industry has great expectations from Finance Minister Arun Jaitley‘s second Budget that will be presented in less than 10 days from now. Many are already calling it Modi government’s “make or break” Budget, though economists like Morgan Stanley’s Chetan Ahya have cautioned that the Budget will unlikely be a game changer.

Whether Mr Jaitley presents a Budget that pleases the industry is anybody’s guess, but his announcements are likely to be aimed at foreign investors, who have played a big role in boosting India‘s stock markets.

The Sensex and Nifty are trading near record highs. The blue chip indices are up over 50 per cent since Mr Modi was named the BJP‘s Prime Ministerial candidate in September 2013. They have also outperformed most big global stock indices.

The phenomenal performance of stock markets has managed to camouflage rising concerns about the Indian economy. To criticism by veteran banker Deepak Parekh about India’s slow-moving economy, Power Minister Piyush Goyal did highlight the share prices of Mr Parekh’s own group companies HDFC and HDFC Bank, which have shot up sharply in the last nine months of the Modi government.

Most analysts also agree with the argument that Indian markets have run up ahead of fundamentals as not only has the economy not been able to rebound as fast as earlier expected, but corporate earnings have also failed to live up to expectations. Earnings of India’s big companies declined for the third straight quarter ending December.

The Budget is therefore important as it can provide more ammunition for markets; however, it is also important that Mr Jaitley’s Budget lives up to the expectations of foreign investors, who own nearly half of India’s stock markets. According to Bank of America Merrill Lynch, foreign investors bought stocks for ninth consecutive quarters ending December; their ownership is now at an all-time high.

If Mr Jaitley’s Budget fails to excite foreign investors, they might start getting impatient with the Modi government. The result could be catastrophic.

It is for this reason that Morgan Stanley’s Ridham Desai terms the upcoming Budget as the most important one for the stock market after the early 1990s, when India launched economic liberalization.

As a first step, economists expect Mr Jaitley to stick to the fiscal roadmap. “At this juncture you don’t want rating agencies to change their outlook on India, there have been huge fixed income inflows into the country and you don’t want RBI‘s monetary easing process to stop,” said Samiran Chakraborty of Standard Chartered.

More clarity on retrospective taxes, extension of the feared General Anti-Avoidance Rule (GAAR) indefinitely and easing up of labour reforms are some other announcements that analysts say could keep foreign investors invested in Indian stocks ahead.

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